Wal-Mart starts retail-tech incubator

Wal-Mart Stores Inc. has opened a Silicon Valley-based innovation hub designed to identify, invent and invest in ideas that will "transform the future of commerce."

The Bentonville-based retailer said its latest technology-based initiative will be known as Store No 8, taking its name from an early Wal-Mart store that was home to experimentation under founder Sam Walton. The business incubator will invest in and partner with entrepreneurs, early-stage startups, venture capitalists and academics, focusing on retail technology innovation in areas like robotics, virtual and augmented reality, machine learning and artificial intelligence.

Marc Lore, Wal-Mart's U.S. e-commerce chief, announced plans for Store No 8 during an appearance at the 2017 Shoptalk retail and e-commerce conference in Las Vegas this week. The incubator will operate as a stand-alone entity within Wal-Mart and give startups the freedom to operate without the constraints of short-term expectations, according to spokesman Ravi Jariwala.

"What we want to be able to do is find and either incubate or invest in entrepreneurs or early-stage startups or partner with [venture capitalists] and academics and give them enough white space and enough time to be able to grow and develop and get bigger and get better," Jariwala said. "Then, at the right time, our eye is always towards how do we very seamlessly ingest this technology back into the Wal-Mart e-commerce enterprise and apply it to our customer experience."

Establishing the hub is another example of Wal-Mart's strategic shift under CEO Doug McMillon, who said last October that the retailer would begin to look more like a tech company.

Wal-Mart acquired e-commerce company Jet.com for $3.3 billion last year and placed Lore in charge of its U.S. e-commerce operations. In the past six months, Lore has restructured Wal-Mart's e-commerce organization and introduced programs like two-day free shipping on 2 million items. Lore also has led Wal-Mart's acquisitions of e-commerce companies aimed at growing its product assortment and expand the customer base.

Wal-Mart purchased online retailers ShoeBuy.com and Moosejaw earlier this year. Last week, the company completed the acquisition of women's fashion retailer ModCloth. Each site continues to operate under its own name, but its leader has been placed in charge of their respective categories across Wal-Mart's U.S. e-commerce platforms.

"We're behind, and we need to catch up," Lore said while speaking at a Code Commerce gathering of executives, entrepreneurs and investors in Las Vegas on Monday night. "We've seen what these acquisitions have done to the business. It's definitely been a nice surge in the categories that we've been acquiring, and we'll continue to do it."

Annibal Sodero, an assistant professor at the University of Arkansas Sam M. Walton College of Business, said the company's strategy of acquiring companies that are established in e-commerce is a necessity as Wal-Mart aims for rapid growth in its online business. But the latest step -- establishing the incubator in Silicon Valley -- is an important move because it will allow the company to "better assess the potential of what is going to happen" in retail innovation.

"In the short run, they need to pursue the acquisition strategy," Sodero said. "In the long run, it's really a strategy of nurturing and honing and developing something within the organization through the incubator. That's a great idea, and I really applaud them for doing that."

Store No 8 will be led by Seth Beal, Wal-Mart's senior vice president of incubation and strategic partnerships.

Beal will be joined by Katie Finnegan, who was previously the head of corporate development at Jet.com.

Wal-Mart declined to divulge how much capital Store No 8 plans to deploy as it identifies and invests in startups. Jariwala said the company has been investing in innovations and emerging technology as it undergoes a digital transformation. The goal of the incubator is to identify the "right innovations and entrepreneurs" and carve out space for them to develop ideas that might not be ready for prime time but could ultimately transform commerce.

Carol Spieckerman, a retail consultant and president of Spieckerman Retail, said that creating Store No 8 is a perfect complement to Wal-Mart's steady stream of platform and brand acquisitions.

She said it will give Wal-Mart a chance to "buy, build or bridge its way to inevitable innovations" in retail.

"The fact is that all kinds of capabilities are out there, yet retailers are exploring and adopting at a snail's pace," Spieckerman said. "Store No 8 marks a major, intentional shift on Wal-Mart's part that could put it ahead of the pack. So many retailers are struggling right now and just don't have the resources to invest in building out their platforms on multiple fronts. Wal-Mart has the deep pockets and is no longer sitting on its assets."